Bitcoin Now Under The Eyes of Enforcement Directorate (ED) Of India

Bitcoin in India Faces Further Stringency In The Form Of Enforcement Directorate

With the increasing adulteration that Bitcoin has been receiving in India, it has also come under the glare of various regulatory bodies. The latest addition to this queue is the Enforcement Directorate (ED) which is looking into risks associated with cryptocurrency usage. Let’s take a look at what the Indian regulatory scenario feels about this bubbling field and what steps it has been taken for tackling the same.

Securities Exchange Board Of India (SEBI)

Ajay Tyagi, the SEBI Chairman agreed to the fact that the rapid escalation of Bitcoins cannot be ignored in its entirety and it does not possess any systematic risk. He also suggested that the issue of bitcoin is being discussed in details by accredited government panels. During the financial markets summit organised by Confederation of Indian Institute (CII), Tyagi pointed out that, “On the issue of bitcoins, the government is looking into it in consultation with the RBI and SEBI. The panel, also consisting of finance and information technology ministries, is looking into what to do about it.”

He also agreed to the fact although bitcoin has not yet received the government’s approval, but the underlying technology behind it i.e Blockchain is very useful and needs to be encouraged.

Enforcement Directorate

According to a report published by Mint, the Enforcement Directorate is on the lookout for potential violations by the cryptocurrency investors and exchanges of foreign exchange rules in the aftermath of a survey conducted by the Income Tax department of India. An anonymous ED official was quoted as saying that, “The I-T department is heading the investigation. If it finds any violation of FEMA, we will launch an investigation. We are waiting for them to form its opinion on how to treat bitcoin.”

Reserve Bank of India

The Central Bank of India has issued three warnings till date for advocating “potential economic, financial, operational, legal, customer protection and security related risks” which is often associated with the usage of cryptocurrencies such as bitcoins. The very first announcement was made on December 2013 in a detailed press release wherein RBI prescribed that the legal standing of exchanges as well as cryptocurrencies was “unclear.” It had also branded the virtual currencies as a risky investment medium given the fact that, “They are stored in digital/electronic media that are called electronic wallets” and investors are “prone to losses arising out of hacking, loss of password, compromise of access credentials, malware attacks, etc.”

It was clearly stated by the central banker that, “creation, trading or usage of VCs including bitcoins, as a medium for payment are not authorised by any central bank or monetary authority. No regulatory approvals, registration or authorisation is stated to have been obtained by the entities concerned for carrying on such activities.”

Income Tax Department

A survey was recently conducted on suspicion of alleged tax evasion by the Income Tax Department of India on 13th December on the major Bitcoin exchanges across India including those located in Bengaluru, Delhi, Kochi, Hyderabad and Gurugram.

According to section 133A of the Income Tax Act, the survey was conducted for, “gathering evidence for establishing the identity of investors and traders, transaction undertaken by them, identifying counterparties, related bank accounts used, etc.”

The survey findings revealed that only 4 to 5 lakh entities registered on these exchanges were operational and were indulging in investments and transactions out of the estimated 20 lakh total.

After conducting survey operation, the IT department also probed into Bitcoin Exchanges in order to ascertain the rate of tax under the GST regime.